DBRS Confirms PepsiCo At A (high) Stable on Acquisition of Russian Dairy and Juice Company

DBRS has today confirmed the Senior Unsecured Debt and Commercial Paper ratings of PepsiCo, Inc. (PepsiCo or the Company) at A (high) and R-1 (low), respectively, based on PepsiCo’s announced purchase of 66% of Russia’s Wimm-Bill Dann Dairy and Juice Company’s (WBD) issued shares for $3.8 billion. The Company plans to fund 75% of the cost of the transaction with cash and the remainder with commercial paper (which is expected to be repaid quickly). The transaction is expected to modestly accretive in year one (excluding one-time transaction costs and fees). PepsiCo expects that WBD’s expected earnings for 2010 will be approximately $2.6 billion in revenue and $332 million in EBITDA which will add to PepsiCo’s $2.0 billion 2010 revenues that it currently generates in Russia. In addition, PepsiCo expects the combination to have the potential for total pre-tax annual run-rate synergies of approximately $100 million by 2014. On a pro forma basis, the Company’s debt-to-EBITDA is expected to increase to 2.2x, based on a rolling 12 month to September 4, 2010. As such, the Company’s financial profile is expected to stay within the current rating range. DBRS views this acquisition as positive from a business profile point of view. The combination will increase PepsiCo’s scale, brand portfolio and system capabilities within Russia, with the potential to expand its platform across Eastern and Central Europe. Integration risk is seen as low since PepsiCo currently has a significant presence and has substantial prior integration experience in Russia.

The acquisition is subject to customary closing conditions, including receipt of certain regulatory approvals. The acquisition is expected to close in June 2011. In connection with this acquisition, PepsiCo will offer to acquire the remaining shares of WBD through an offer following the completion of this acquisition at such time and on terms mandated by Russian law.

WBD is the largest manufacturer of dairy products and a leading producer of juices and beverages in Russia. The Company has 38 manufacturing facilities in Russia, Ukraine and Central Asia with over 16,000 employees.

Notes:
All figures are in U.S. dollars unless otherwise noted.

PepsiCo Canada ULC’s Commercial Paper is guaranteed by PepsiCo, Inc.

The applicable methodology is Rating Consumer Products, which can be found on our website under Methodologies.